CEL-SCI's arbitration claim alleges (i) breach of contract, (ii)
fraud in the inducement, and (iii) common law fraud.
Claims for fraud in the inducement also arise frequently in earnout litigation, typically when the sellers allege that the buyers of the business or asset misrepresented their abilities or intentions to generate revenue sufficient to meet the earn-out target.
(38) However, the court applied longstanding Florida precedent to hold that Lower Fees' fraud claim could proceed, stating that "no contract provision can preclude rescission on the basis of fraud in the inducement unless the contract provision explicitly states that fraud is not a ground for rescission." (39) Thus, "[i]f Bankrate wanted to contractually avoid a fraud claim," the court reasoned, "it should have specifically stated that in the contract it signed." (40)
The trial court held that in the absence of fraud, the arbitration and venue clauses were enforceable, but the allegations of
fraud in the inducement of the agreement were to be resolved by a hearing prior to either party compelling arbitration.
The economic loss rule clearly seeks to prevent the mere recasting of a contract claim sounding as a tort of
fraud in the inducement,(285) because tort law does not protect parties from breach of duties assumed only by agreement.(286) Courts correctly recognize that "almost any contract claim can be framed as a
fraud in the inducement."(287) The test to determine whether a plaintiff has a fraudulent inducement action is not to examine "the gist of the action"(288) by determining if the terms are "inseparably embodied in the parties' subsequent agreement"(289) nor the nature of the damages claimed.(290) These indicators suggest only that there might be a recasting of the contract claim; they are the beginning, not the end, of the determination.
Capital Video, the landlord sought to rescind a new commercial lease on the grounds of
fraud in the inducement by the tenant.
Courts have been less than consistent, however, in their approach to whether commercial tort claims, such as
fraud in the inducement, misrepresentation, conspiracy, etc., which often are raised in the course of reinsurance disputes, must be arbitrated.(16) At times, a court will conclude that some, but not all, of the claims at issue are subject to arbitration.(17) Of course, the parties always have the option of agreeing to arbitrate all their claims, including those that would not be arbitrable but for that agreement.
Prior to HTP, some courts had taken the view that tort claims for fraudulent inducement were barred under Florida's economic loss rule.(2) The ELR had been generally held to prohibit the assertion of tort claims to recover for purely economic injuries.(3) In HTP the court held that a "cause of action for
fraud in the inducement of contract is an independent tort and is not barred by the economic loss rule."(4) While HTP announced an exception to the ELR for fraudulent inducement, the contours of the exception remain unclear.
Fraud in the inducement presents a special situation where parties to a contract appear to negotiate freely which normally would constitute grounds for invoking the economic loss doctrine but where in fact the ability of one party to negotiate fair terms and make an informed decision is undermined by the other party's fraudulent behavior.